Archive for the 'Mortgage' Category
Financial Report ~ June 1st
This will be a new regular feature to give you an update on the markets and how they affect mortgage rates.
Weekly Preview
Last Week: The Treasury markets saw some slight increase in interest rates in another volatile trade. Mortgage rates were essentially unchanged. The week was marked with Treasury selling another $113B of notes and surprising jumps in existing and new home sales (+7.6% and +14.8% respectively). Two reports on consumer confidence and sentiment were a little better than a month ago, but these are less significant than hard market data as both the Conference Board’s consumer confidence report and the U. of Michigan’s consumer sentiment report are mostly emotional readings predicated on how the stock market and interest rate markets are performing. By the end of the week, after continued high market volatility, the stock market ended with not much change from the previous week. The sovereign debt problems in Europe continue to be the dominant concern in the equity markets. Fitch, the rating agency, down-graded Spain’s sovereign debt rating from AAA to AA+, adding to the angst that debt issues may become more strained.
This Week: Expect more market volatility in the equity and interest rate markets. The stock market, based on the key indexes, is still too high given the concerns emanating from Europe and what we see as a slowdown in China’s expansion. The outward driver for US markets is captured in the movement of the euro currency; as it declines against the dollar, US stock markets will be pressured. The euro may find support at $1.20 dollars per one euro (Friday the level was $1.23). No Treasury borrowing this week; the giant this week is the May employment data on Friday (early estimates are an increase of 500K jobs with unemployment at 9.8%). Tuesday a key data point on the manufacturing sector (ISM index). Thursday it’s the ISM services sector report. Expect increased concerns that the US economy will slow based on the previous excessive bullish outlook that had rallied equity markets. No inflation and increasing concerns that the economic outlook is weakening will support low interest rates for many more months.
Think Big Work Small
Think Big Work Small is a Video Blog (Vlog) which is produced by two mortgage brokers down in California. A lot of the information they give is great for everyone. Some is just for mortgage professionals and some is just for real estate professionals, but there is enough good information for the general public that I think it will be good to feature here. So I’ll start posting these as I watch them and if there is something in the video I think would be good information for you, I’ll post it here and on my FaceBook page.
Trends in Real Estate ~ Interest Rates at All Time Low!
Interest Rates at All Time Low
Recently my broker, Windermere Professional Partners, pointed to a CNBC report that said interest rates were low due to the economic crisis in Europe. I thought that was interesting given the current real estate market. Go here to get that article.
Bankrate.com, which has been keeping track of mortgage interest rates for over 25 years, notes that the current interest rate on a 30-year loan is now at 4.87%. This rate is the lowest rate ever since Bankrate.com started keeping track. Even jumbo loans which are of prime interest in Gig Harbor are at all time lows. A jumbo loan – currently defined as a loan for over $417,000 – is now listed at 4.5%, which is down from close to 6% at this time last year.
“It’s the best time in our generation to buy,” says Mark Zandi, chief economist at Moody’s. “It may be the best time in any generation. Mortgage rates are so low and with homes prices down and lots of inventory, you couldn’t pick a better time to buy ….
So a couple of questions come to mind. First, why are interest rates at an all time low, and why aren’t more people in the market to buy a house, since this is a historically great time to buy?
Trends in Real Estate ~ What to do about Fannie Mae & Freddie Mac
The quasi-government run companies that created what’s referred to as the secondary mortgage market, Fannie Mae and Freddie Mac, are back to Congress with their hands out for more money. Here are the quotes:
WASHINGTON (AP) -Fannie Mae has again asked taxpayers for more money after reporting a first-quarter loss of more than $13 billion.
The mortgage finance company, which was rescued by the government in September 2008, said it needs an additional $8.4 billion from the government to help cover mounting losses. Link.
And
NEW YORK (CNNMoney.com) — Freddie Mac on Wednesday requested another $10.6 billion handout from the federal government. Link.
As a home owner or a person looking to purchase a home what does all this mean to you and why should you care? Well, let’s start with a little history. All the way back when Clinton was President, Congress decided they wanted home ownership in the U.S. to be above 60%. So they mandated a loosening of credit requirements for home buyers through Fannie Mae and Freddie Mac. At first the banks and other lenders didn’t like this as it made their loans on mortgages more risky but they came around and saw a huge potential for profit, especially since Fannie and Freddie were going to buy the mortgages anyway. Thus was the sub-prime mortgage market created.
But that wasn’t all. Fannie and Freddie decided to invent a new kind of security that could be traded like stock. They bundled a great many mortgages together and created mortgage backed securities. A lot of these securities were based on these sub-prime mortgages. So when the sub-prime market bubble burst these mortgages were worthless. Both Fannie and Freddie held most of them while a lot of the securities were being sold on the international market and invested in by central banks, most notably China.
Which leads us to today and having both Fannie and Freddie asking for more money after getting huge bailouts last year. And this is where it gets bad for you as a buyer or seller of a home. The more money Congress borrows to prop up Fannie and Freddie, the less money there is for the American consumer to purchase housing. The less money available for the housing market means higher interest rates. The Federal Reserve is not going to lower rates right now because inflation is creeping up. The interest rates on mortgages, which is largely driven by these mortgage backed securities, will go up as the market price for these securities goes down.
What can be done? Well, first of all both Fannie Mae and Freddie Mac need reforming. I would propose consolidating them as they are for the most part redundant. I would require that they take a one time charge on all bad debt or sell it off in the private market place. I know we as tax payers would have to pay for the loss but at least the bad debt causing the loss wouldn’t be on our books.
Then I would get the government out of the mortgage backed securities business. Our government’s job is to ensure there is a fair marketplace, not to make the marketplace and then be one of the players. I would also put into any financial reform bill that the government could never do this again. Most of the blame for the housing bubble that burst lies squarely at the feet of Congress. This is not a Republican or a Democratic problem as this bubble blew up and burst under both Clinton and Bush.
Finally, the chairman’s pay at Fannie and Freddie should be linked to performance.
April 3, 2009 -Fannie Mae and Freddie Mac, the US Government-controlled mortgage giants, will pay $210 million (£141 billion) in retention bonuses over the next 18 months. Link.
How can they give out $210 million in bonuses and still be asking for handouts from us taxpayers?
So will we see higher interest rates in our near future? Absolutely! If you are a buyer who missed out on the tax credit, now is not the time to be sheepish on real estate. Prices of homes are at an all time low and interest rates are rising and will continue to rise. You need to strike now to lock in what are still attractive rates.
If you are thinking of selling your home, I know this is a tough market. You probably are not going to get what you thought you would a few years ago — but how much harder will your home be to sell if interest rates keep going up?
If you have any questions about mortgages or buying and selling your home please give me a call at 253-225-2158 or go here.
Trends in Real Estate ~ Interest Rates
Perhaps the second most popular question I get from people after they ask how’s business is “Where do you see interest rates going?”. Well, contrary to what most believe, the answer is that interest rates are fairly simple to figure out. Unfortunately the media has portrayed them as some sort of magical formula that only a few esoteric old men know and you are better off not asking about.
But the truth is, the interest rates for mortgages are mainly determined in the securitized mortgage market. Basically a mortgage backed security is one that has been bundled with other mortgages into a security similar to a stock. These securities are then traded and have a market value depending on the risk of the debt. So an A+ mortgage would be bundled with other A+ mortgages and have a market price higher than a B+ mortgage security.
Buyers & Seller’s Tips ~ Why Do Short Sales Fail
In real estate we are constantly getting continuing education, and it is probably safe to say that the topic of Short Sales is currently the most common educational offering. Short sales are very difficult and complicated and sometimes they just don’t make sense. Stop me if you have heard this one: I don’t understand why the bank would foreclose since they will lose a lot of money if they foreclose and at least they get something if it sells at a short sale.
According the Joint Economic Committee of Congress, the average foreclosure costs $77,935 while preventing a foreclosure runs $3,300. So why wouldn’t lenders do almost anything to avoid a foreclosure?
First of all, the cost does not accrue totally to the lender. The homeowner has a typical loss of $7,200 which includes loss of equity in the property, moving expenses, and perhaps some legal fees.
Those neighbors living in close proximity to the foreclosed house suffer $1,508 in losses from the decrease in the value of their own home as the neighborhood begins to deteriorate.
The local government loses $19,227 through diminished taxes and fees and a shrinking tax base as home prices decrease. This is a hard number to justify. First of all, only a portion of the declining tax base is due to foreclosures. A big chunk of it is based on falling prices community wide. And we’ll bet that even as we talk about it local governments are busy adjusting assessments and mill-levies to keep total revenues close to pre-housing crisis levels. This means that the neighbor’s share of the costs should be higher as they absorb increased tax levels.
Still the question is, why is a short sale so difficult? The answer usually lies with the listing broker and the home owner. That may be a surprise to you. Most blame the lenders for being slow, for hiring minimum wage people to help with the processing and for just not caring. But as the figures above show, even if they don’t stand to lose all of the $77,935 the bank only wants to foreclose as a last resort.
Still Not Too Late!
You have probably heard that the tax credit for first time and move up home buyers is going away April 30th. And that’s true, but what most people don’t realize is that you have until April 30th to have a signed contract in your hand. You are then given until June 30th to close on the deal. So as of today you have exactly…
22 Days
…to find a house and get a signed contract. The inspection, loan and everything else can happen within the 60 days after that to close. If you have any questions about this please head over to the Buyer’s Question page and ask me! Or give me a call at 253-225-2158.
Be sure to visit 365 Things to Do in Gig Harbor, WA!
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